add to Roth IRA?
- Thread starter broadway
- Start date
Don't know enough about your situation. Generally it's smart to save in tax exempt (Roth IRA) or tax deferred (traditional IRA) as much as you can when young. Every bit helps. However, you cannot pull the money out without heavy penalty so make sure you don't need it first.
pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Do you have a sufficient emergency fund?
Probably not for that small amount. I was going to suggest that you look into the Savers Tax Credit but you only get a benefit if you have enough income to have a tax obligation. For every dollar that you save in a tIRA or a Roth yu get a 50 cent tax credit... DS has received a refund of all taxes paid in the last 4 years using this opportunity. maxes out at $18k of AGI, but you can used tIRA contributions to reduce AGI to some extent.
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zinger1457
Thinks s/he gets paid by the post
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- Jul 22, 2007
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- 3,229
That makes sense, heck with no income and taking the standard deduction and exemption the first ~$10K of the conversion would be tax free.
evilanne
Recycles dryer sheets
Since you are already working on converting Traditional to Roth, you may want to consider adding gross amount from your W-2 to the Roth--depending on what your ultimate goal is (contributions to IRA have to be earned income). If you need to itemize, you must have other passive income. You don't have to make decision now...contributions to Roth for 2017 can be made anytime between now and tax due date in April 2018, when you will have a better idea of your earnings, income & taxes.
For me, I do IN THIS ORDER:
tax advantaged MAX 401k (DW MAX 403B), then
tax advantaged MAX Roth, then
tax advantaged MAX Traditional IRA, then
tax advantaged MAX SEP-IRA, Then
tax advantaged MAX HSA, then
MAX 529
then whatever's left Taxable Brokerage baby. Above might be somewhat standard for a younger working professional. ER forum taught me to do it in this order. Google and investment books backed up my decision.
Oh, and mortgage note paydown...notes at 4% and 2.5% HELOC so it's like a solid 2.5-4% return throwing cash at those two guys.
tax advantaged MAX 401k (DW MAX 403B), then
tax advantaged MAX Roth, then
tax advantaged MAX Traditional IRA, then
tax advantaged MAX SEP-IRA, Then
tax advantaged MAX HSA, then
MAX 529
then whatever's left Taxable Brokerage baby. Above might be somewhat standard for a younger working professional. ER forum taught me to do it in this order. Google and investment books backed up my decision.
Oh, and mortgage note paydown...notes at 4% and 2.5% HELOC so it's like a solid 2.5-4% return throwing cash at those two guys.
RunningBum
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
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- Jun 18, 2007
- Messages
- 13,236
Sure, I'd put it in the Roth and let it grow tax free, why not? Especially if you're over 59.5 or have had the Roth for at least 5 years, then you can get to it tax/penalty free if you have to, and even if you aren't there are conditions such as medical expenses you can withdraw it for. It's not much but it should be quick and easy to do. I figure if you're in the habit of making small decisions correctly, you'll make large decisions correctly too.
Blue Collar Guy
Thinks s/he gets paid by the post
as usual i have a story
when i retired ,i got a state job that paid 28 dollars an hour this was in 2008. one of the other new hires told me to dump it into a 457k(like a 401k) because since we are drawing city pensions at the end of the year the tax man will want a big share. i lasted 2 months in that job(that will be another post). i socked away a little over 6000. i threw it in a target fund, i think 2050. its about 9000 now. i felt very unsatisfied with doing that. my paychecks were 14 cents, 22 cents, something like that, the rest went into the 457. i should have let the tax man take his 50 %, and on the other 14 dollars an hour bought me and the bride some goodies. we didnt need the money by then, but i really didnt get any joy out of my paycheck. so i leave the choice to you, in my next life when i have enough , any new income from employment goes into the checkbook. then into my wallet for "mad" money. with 460 bucks you can do a bunch , buy the dog a new bowl and chew toy, seeing him happy is worth a million bucks, buy ur spouse a day at the salon, or a golf club and buy urself a car detailing. if ur financially set spent the dough . those are just examples i dont know if u have a dog. spouse, male, female, or even own a car. if your 20 years old put the money in a roth hands down. when you withdraw it in 40 years you might be able to buy a car with it. P.S. Man i love this forum, i get to free flow my thoughts on subjects.
when i retired ,i got a state job that paid 28 dollars an hour this was in 2008. one of the other new hires told me to dump it into a 457k(like a 401k) because since we are drawing city pensions at the end of the year the tax man will want a big share. i lasted 2 months in that job(that will be another post). i socked away a little over 6000. i threw it in a target fund, i think 2050. its about 9000 now. i felt very unsatisfied with doing that. my paychecks were 14 cents, 22 cents, something like that, the rest went into the 457. i should have let the tax man take his 50 %, and on the other 14 dollars an hour bought me and the bride some goodies. we didnt need the money by then, but i really didnt get any joy out of my paycheck. so i leave the choice to you, in my next life when i have enough , any new income from employment goes into the checkbook. then into my wallet for "mad" money. with 460 bucks you can do a bunch , buy the dog a new bowl and chew toy, seeing him happy is worth a million bucks, buy ur spouse a day at the salon, or a golf club and buy urself a car detailing. if ur financially set spent the dough . those are just examples i dont know if u have a dog. spouse, male, female, or even own a car. if your 20 years old put the money in a roth hands down. when you withdraw it in 40 years you might be able to buy a car with it. P.S. Man i love this forum, i get to free flow my thoughts on subjects.
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Sandy & Shirley
Recycles dryer sheets
This post will be a bit long and somewhat math complex, but it is worth reading, it could save you money!
I have always recommended the conversion of Traditional IRA to Roth to avoid the 46.25% marginal tax bracket during retirement.
The deferred taxability of your Social Security benefits cause higher these marginal brackets during retirement. As you enter the 25% standard federal bracket you could easily be in the 85% taxability bracket for your Social Security. Taking $100 out of your TIRA would result in an additional $85 of your SSB to become taxable so you taxable income would increase by $185 and 25% of that $185 is $46.25. You just paid $46.25 in Federal tax because of a $100 TIRA withdrawal, which is a marginal bracket of 46.25%.
Making Roth contributions or doing Roth Conversions at the standard 25% bracket to avoid the 46.25% marginal bracket during retirement was and still is a good idea. “Currently” doing a little extra is not a bad idea. The current standard rates start with 10%, 15%, and 25%. Since 15% at the 85% taxability level is a marginal rate of 27.75%, creating a little extra Roth at a working tax rate of 25% or 28% is basically a neutral action if that cash were to be taxed at 27.75% later.
Problem? The new tax proposal “could” eliminate the 15% bracket. If that happens the “extra” Roth would have been taxed at the 10% plus 85% or 18.5% marginal level during retirement. Doing the conversions today at 25% to avoid 18.5% later is no longer a good idea!
“IF” the new tax bracket proposals become law, doing Roth Conversions need to be looked at more closely. You have to consider the tax cost now vs later with a larger magnifying glass! You will probably want to make the top end of the conversions the top of your 15% tax bracket and not do any conversions at the 25% level!
I have always recommended the conversion of Traditional IRA to Roth to avoid the 46.25% marginal tax bracket during retirement.
The deferred taxability of your Social Security benefits cause higher these marginal brackets during retirement. As you enter the 25% standard federal bracket you could easily be in the 85% taxability bracket for your Social Security. Taking $100 out of your TIRA would result in an additional $85 of your SSB to become taxable so you taxable income would increase by $185 and 25% of that $185 is $46.25. You just paid $46.25 in Federal tax because of a $100 TIRA withdrawal, which is a marginal bracket of 46.25%.
Making Roth contributions or doing Roth Conversions at the standard 25% bracket to avoid the 46.25% marginal bracket during retirement was and still is a good idea. “Currently” doing a little extra is not a bad idea. The current standard rates start with 10%, 15%, and 25%. Since 15% at the 85% taxability level is a marginal rate of 27.75%, creating a little extra Roth at a working tax rate of 25% or 28% is basically a neutral action if that cash were to be taxed at 27.75% later.
Problem? The new tax proposal “could” eliminate the 15% bracket. If that happens the “extra” Roth would have been taxed at the 10% plus 85% or 18.5% marginal level during retirement. Doing the conversions today at 25% to avoid 18.5% later is no longer a good idea!
“IF” the new tax bracket proposals become law, doing Roth Conversions need to be looked at more closely. You have to consider the tax cost now vs later with a larger magnifying glass! You will probably want to make the top end of the conversions the top of your 15% tax bracket and not do any conversions at the 25% level!
